Category Management

What does this module / this process contain:

Definition of category levels: the correct definition of a hierarchy of categories that allows a purchasing organization to define strategies at a higher level, but which are still relevant to most of the sub-categories, products and suppliers in that category.

Analysis of suppliers and items per product group based on importance for purchasing and the complexity of the market. The result is the classification of purchased parts into non-critical items, leverage items, strategic items and bottleneck items.

Analyses of markets, currencies, risks and other dependencies in order to be able to determine the purchasing strategy in a group of commodities.

Definition of the supplier strategy: the classification of suppliers as blocked, approved, strategic etc. prevents other departments and decentralized purchasing organizations from working with suppliers that have not been approved.

Internal communication of the supplier strategy and the supplier's release status so that all stakeholders know how to structure supplier negotiations and with which suppliers which conditions are to be taken into account.

What are the main goals:

• Efficiency: by combining several items or services into product groups and only analyzing risks and developing strategies at this higher level, you can still develop targeted strategies for a large number of items.
• Internal alignment: by documenting the strategy for each product group and supplier, you ensure that all employees in the company are informed and support this strategy.
• Bundling of requirements in order to achieve the greatest possible negotiation power.
• Identification of the right strategy: By automatically assigning the supplier to non-critical, bottleneck, leverage or strategic quadrants, standardized and proven risk and cost reduction strategies can be applied.

Specifics per industry:

Manufacturing: since the risks in the production environment are greater than in the non-production environment, category management is particularly widespread in the production environment.

In larger companies there is usually a matrix organization in purchasing. That means there are so-called project buyers, who are responsible for a complete product, regardless of the product group, and there are those responsible for the category, who define overarching strategies for each product group. The project buyers therefore have to follow different strategies depending on the product group. There are usually 5 to 10 times as many project buyers as there are category buyers.

Project buyers negotiate individual prices and conditions, taking the category strategy into account. This is why integration at the tool level is so important, as strategies in PowerPoint can be easily negated while tools can be configured in such a way that some suppliers, for example, cannot be selected at all.

Latest innovations:

In general, these functions have not been available in source-to-contract applications for long. In the past, the focus was on only showing the supplier status. The category strategy itself was mostly created in PowerPoint and was not directly available in the tool. The latest innovations in this area are:

Integration: the automatic updating of the framework conditions from other areas such as the volume from spend management and the negotiation result from sourcing, but also the integration of savings tracking functions as a result of the product group strategy for measuring the results is not standard everywhere.

Recommendations: the automatic generation of recommendations as to which measures would be possible and most efficient based on the analyzed data.

AI-generated category strategies: generative AI now drafts a first category strategy from spend data, market indices, risk feeds and supplier information, which the category manager then reviews and adjusts. Specialised providers such as akirolabs and Cirtuo focus on this; Coupa acquired Cirtuo in May 2025 to add category management to its suite. The result is a strategy that can be updated monthly instead of every 18 months.

Example for a matrix structure